How to Start a Farm: Advice from a Financial Planner

You probably remember the 1960s sitcom Green Acres, and its catchy theme song:

Green Acres is the place for me,

Farm living is the life for me.

Land spreading out so far and wide,

Keep Manhattan just give me that countryside.

The main story revolves around two socialites (Eva Gabor and Eddie Albert) who retired from their jobs in the city to move to a farm in the country. While the husband wants to escape the bustling metropolis, his wife — a fashion diva — yearns to return to Park Avenue and their old penthouse view. Which of the two is more like you? Are you dreaming of the city life or corn fields and clover? If your future plans might include a move to the country, read on.

High Heels or Hiking Boots?

One of my clients who made the city/country move described it like this: You have to be prepared to trade in your high heels for hiking boots and your five iron for a chain saw.

Living on a farm is great if you enjoy wide open spaces, quiet surroundings, fresh air, and eclectic neighbors. However, you do have to deal with lots of bugs, dirt, and critters. Some of the wildlife may be novel and beautiful — eagles, and owls, and foxes, for example. But you’ll also have to put up with deer eating your vegetables, skunks spraying your dogs, and groundhogs digging holes in your fields. If you fancy yourself a manager, you’ll gain lots of experience in “wildlife management.”

Goats or Grapes?

There are a variety of farm opportunities, depending on whether you plan to be an active farmer or a more passive farmer. For example, horses and livestock require a lot of attention and you’ll be tied down to the farm (unless you hire workers to help you handle the daily chores). If you can’t make that kind of commitment but want to enjoy having farm animals, there are other options:

Board horses at your farm: You provide the pasture land, a barn for shelter, and fresh water, while the owner provides daily care and food.

Rent a goat from a farmer who provides them to clear land.

Lease your property to a farmer who needs pasture land for horses, cattle, sheep, or goats.

Of course, not every farm needs animals, and there’s no end to the creative possibilities you might come up with:

Rent your land to a farmer to grow corn or soybeans – typically, you’d negotiate a per acre price for the land. The farmer plants and harvests the crops and keeps the land clear for future planting.

Wine makers are often looking for land to grow grapes. In that case they’d want a long-term lease and certain other amenities (a deer fence, irrigation, pest control, etc.).

Apple orchards are very popular and can be quite beautiful when all the trees blossom. Other popular fruit trees include cherry, plum, pear, and peach.

Sunflowers produce a beautiful crop and are gaining popularity.

Bee hives produce local honey, which is quite popular nowadays with its many immune supporting benefits.

Obviously, a decision like this requires substantial research. Start by visiting several farms in the region that you’re interested in. It’s a good idea to find a bed and breakfast and stay for several days, since you want to see what the area is like during the week and on weekends. Talk with a County Agricultural Expert to better understand the nuances of agricultural development in the area. Look for farmers’ markets, county fairs, horse shows, restaurants, wineries, gardens, cultural events, and historical sites nearby. After all, you’ll sometimes need a break from farm chores, along with a chance to socialize with humans, so make sure the area you choose offers a variety of fun events.

Profits or Losses from Farming

You’ll need to report your farming activities to the IRS and it’s important to consult with your tax advisor before filing your taxes. You may need to file a Schedule F to report a profit or loss from farming if you have received income from operating, managing, or cultivating a farm for profit (either as an owner or tenant) or by caring for someone else’s crops or livestock. Self-employment taxes may also apply to your farming activities.

If you did not materially participate in the farming activity but received farm rental income in a sharecrop arrangement, then IRS Form 4835 may apply. However, self-employment taxes will usually not apply in this situation.

If you receive cash rent from a tenant who uses your land and pays a flat charge, then you may need to file Schedule E.

Finally, it’s important to keep track of your farming expenses. This can range from farm equipment and truck expenses to supply expenses like feed, seed, and fertilizer.

Farm and Crop Insurance

You’ll want to make sure you protect your farm buildings, equipment, livestock, and crops with farm or crop insurance from a Farm Certified Agent. In addition, it’s important to make sure you have plenty of Personal Liability or Umbrella Insurance Coverage — this is typically sold in $1 million dollar increments and is reasonably priced.

For Future Farmers

If you would like to preserve your farmland for future generations, you may want to consider a “conservation easement.” An easement is a legal agreement between the landowner and a private or government entity to protect (conserve) the land. There will be restrictions placed on your land that may limit any future development. If you donate your land, then it may qualify as a tax-deductible charitable donation. If you sell a conservation easement, then you may receive funds to keep your farmland undeveloped. In some areas, placing an easement may also result in property tax savings.

In terms of estate planning, the conservation easement may lower the property value of your farm (since it can’t be sold to a developer) which in turn, may lower the potential estate tax upon your death. If the easement is granted during your lifetime or at the time of your passing, this could preserve the land for future generations.

Moving to the country to open a farm involves a major lifestyle change, for both better and worse. But a little planning and preparation can help smooth the transition and free you to enjoy your new environment.

Author: Deb Kriebel

After growing up on a farm in Unionville, Pennsylvania — the 10th generation in her family to do so — Deb Kriebel headed off to Penn State, where she received a Bachelor’s degree in Chemistry and met her future husband. The succeeding years took them from Virginia to Alaska to Florida, where she received an MBA. Shortly after moving to Maryland, Deb met Pinnacle CEO John Hill at a local church, and he was impressed with her warm personality and facility with numbers. She joined the firm in 1996 and was made a partner in 2002. A talented financial planner and seminar leader, Deb was named a Five-Star Wealth Manager in 2011, and has been featured in the Ladies’ Home Journal, the Detroit Free Press, and Dow Jones.

Pinnacle Advisory Group is a private wealth management firm, founded in 1993 and headquartered in Columbia, Maryland, with offices in Miami and Naples, Florida. We work with more than 1250 families and manage over $2 billion in assets for clients both in the mid-Atlantic region, and around the world.
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